A new Green Street report by Managing Director and Co-Head of Strategic Research, Daniel Ismail and Harsh Hemnan, analyst on the net lease and ground lease sector teams, looks at the Q2 CRE transaction results for 2023. The results are probably not surprising given all the news that has come out about industry trends: activity was down 50% year over year.
“Broader macro conditions are not supportive of CRE transactions right now,” Ismail said in prepared remarks. “Credit availability has tightened, and that combined with higher interest costs, a persistently wide bid-ask spread, and the lack of forced sellers is limiting deal flow,” said Ismail. “The decline remains fairly broad-based, as no markets appear to have avoided material slowdown in transaction activity.”
Office saw the biggest drops, particularly in markets like Houston, New York, and Atlanta, relative to estimated market value. Multifamily and strip centers stood out with steep year-over-year volume declines. Net lease deal volume trended better.
Sales prices were higher than average, which could mean that the selling properties tended to be of better quality, although that isn’t a given. Green Street’s Commercial Property Price Index, was down about 1% in the quarter and 12% year over year.
Another measure is that annual transactions are usually between 2% and 5% of asset value. In the first half of 2023, though, it was 1%, so significantly off a normal pace.
Split by metro area, the percentage drops ranged widely. For example, the least affected was in San Diego, which was down by 37%. New York City, often seen as brutalized because of office, was down by 38%, maintaining more of its CRE value than many other locations. Boston, Chicago, and Orange County were clustered next but still was down 44%.
So how bad was bad? The five biggest losses start with Atlanta’s 70% down. Next are Philadelphia (-72%), Seattle (-76%), and Dallas/Ft. Worth (-77%). At the bottom was Washington, D.C., which has lost 86% of its deal volume.